Read on to arm yourself with the essential know-how of home insurance policies
Your home is undoubtedly your most precious asset. Calamities come unannounced and can cause irreparable damage to your home and finances putting your whole world out of order. A home insurance ensures that your world is swiftly put back into order after a disaster. You can easily insure the structure, contents, or both for your home against natural disasters and man-made risks. Below, we attempt to answer some of the most frequently asked questions about home insurance.
What Is Home Insurance?
Home insurance covers your home’s structure, or its contents, or both against any natural or man-made disasters. It covers your home against natural calamities such as lightning, fire, typhoon, storm, flood, earthquake, etc. Not only that, it also insures your house against man-made disasters such as explosion, aircraft damage, riots, terrorism, and other perils.
How Is The Sum Insured Calculated?
The sum insured is calculated on the cost of construction. Any given house is valued using three parameters: building, land, and locality costs. For home insurance, only the cost of the structure is covered. For example, if the built up area of your home is 1000 sq. feet and the cost of construction is ₹ 800 per sq. feet. Then the sum insured for the said home is ₹8 lakh.
There are two ways of buying a home insurance, market value or depreciation cost basis and reinstatement basis. In the market value or depreciation basis, the value of your house after considering depreciation is calculated. The insurer depreciates your house value annually by 2% up to 100% in 50 years. Reinstatement, on the other hand, is the value of reconstructing the house and it excludes depreciation. It is therefore recommended that you buy home or its’ contents insurance on reinstatement basis to avoid depreciation. However, the insurer will pay the insured sum only after reconstruction or may help in construction in a few cases.
How Much Does Home Insurance Cost?
Contrary to the popular notion, home insurance is not expensive. Let us take an example to explain this better. Let us assume that a customer opts to take insurance for both structure and contents of his home that has a built-up area of 450 sq.ft. The cost of construction is ₹800/sq.ft. The total value of contents in his home is ₹1 lakh, of which ₹25,000 comprises of jewellery. Therefore, for a period of one year he will get an insurance cover of ₹4,60,000 (₹3,60,000 for the structure and ₹1,00,000 for content). The insured will have to pay only ₹ 1,232 as the annual premium. The plan will include protection against earthquake, floods, fire and allied perils, terrorism, cyclone, storm, hurricane etc. and an all risk jewellery cover. It is therefore evident that home insurance is highly affordable.
How Do You Avoid Being Underinsured?
As is the case with real estate in general, the value of the property appreciates over time. It is up to the owner to keep a track and ensure that he is not underinsured. Underinsurance means that if you have brought a cover for your home structure for ₹ 4 lakh, and after a few years, the insurer assesses the cost of construction for ₹ 8 lakh. Then a claim will be paid out to you based on ₹ 4 lakh. If the insured does not assess the cost of construction, then most insurers assume that he has agreed to self-insure the remaining cost.
What Happens While Making a Claim?
While buying a home insurance, it is equally important to understand the claim process also. Usually insurers do not check your property or its contents before insuring them. However, they check each and everything thoroughly once a claim is made. As a customer, you need to have proper documents and bills for things you claim for. Even for the contents, you need to produce relevant bills to indicate that you own those things.
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